APICS News

Tick Tock

By APICS CEO Abe Eshkenazi, CSCP, CPA, CAE | 0 | 0 | January 16, 2012

Since the middle of the 16th century, Swiss-made timepieces have been prized for the precision of their mechanical movements. And although the emergence of quartz technology in the 1970s reduced the number of watch manufacturers in Switzerland, the industry rebounded in the 1980s, due in no small part to that iconic, slim black plastic watch__the Swatch.

Last week, the New York Times ran a fascinating article about Swatch. Raphael Minder reports that beginning in 2012, Swatch "will begin to cut back, and possibly end, its sales to competitors to concentrate on producing watches with higher profit margins and to make sure it has enough supplies on hand for its own brands." From Swatch's strategic perspective, this seems to make sense. But there are those who argue that from the Swiss watch industry's perspective, this is a bad move.

A group of Swiss watch manufacturers, who are supplied with mechanical components by Swatch, have filed a suit to overturn the ruling of Switzerland's competition authority allowing Swatch to proceed with this strategy. Without access to Swatch's production lines, the manufacturers say their businesses will suffer, as no supplier within Switzerland is poised to take the place of Swatch. The article quotes Peter Stas, co-owner of an independent watch company that is part of the suit: "A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger."

On one side is the world's largest watchmaker working to maintain its dominance and grow as demand increases in emerging consumer economies such as China. On the other side are the players in a nationally regulated industry where mechanical parts must be manufactured in Switzerland in order for the watches to claim "Swiss movement." In the middle is the Swiss economy, which is heavily influenced by the watch industry and thousands of workers who depend on it for employment. How did this happen? According to former Swatch executive Olivier Müller, "This whole battle is a result of people completely underestimating the risk that at some stage Swatch could cut off rivals, which is a legitimate decision to make in a free market."

Focusing on risk

The spotlight on supply chain risk has been growing since the recession__and for good reason. Companies no longer take for granted that they will be able to survive a major disruption. What makes the Swatch story so fascinating are the complex relationships and issues involved: competitor as supplier; free trade against state-regulated protectionism; the rights of a company versus the welfare of a nation.

Earlier this year, APICS conducted an extensive research study on supply chain risk management. The report, APICS Supply Chain Risk Folio: Protect Your Business with Risk Managementsynthesizes the APICS research and focuses on risk management principles that every operations and supply chain management professional should practice. The folio points out the following: "Risk management increasingly is recognized as creating a strategic competitive advantage. It promotes an agile supply chain that outperforms competitors impacted by the same shared risks, thus boosting market share when a sudden common risk occurs."

This story may seem like it is about Swatch, but it is as much about the companies who are supplied by Swatch and have failed to consider the possibility that their supply chains might one day not include Swatch. Swatch is a lean manufacturer and an important contributor to the lean supply chains of other Swiss watchmakers. Now, however, Swatch is putting its competitor-customers at risk by strategic design. These companies must be asking themselves: Could we have anticipated this risk and designed our supply chains to mitigate it?

Operations management is everywhere. Today, operations management professionals have unprecedented impacts on the global economy. Consider these questions and how today's edition of APICS Operations Management Now relates to you and your career.

Do you think Swatch's strategy to cut off suppliers is sound? What trade-offs must Swatch executives consider when making this decision?

How do you feel about government involvement in supply chain issues? What do you think is the Swiss authority's appropriate response?

How prepared is your supply chain for the event of losing one of its suppliers?